Subsidized Fertilizer Vs. New Capital

World fertilizer price goes up but the government of Indonesia cut the budget of its subsidized fertilizer for poor farmers. On the other hand, the Minister of Finance is trying to finance new capital by scrapping from other sectors. Reverse Robin Hood policy in action?

The price of fertilizer has gone up 100%, cries the Indonesian Farmers Association (SPI) in the first week of this year. The rise started in October last year, triggered by the natural gas price increase which is about 70% of fertilizer cost, and has caused the closure of many private fertilizer companies around the world. Even China has decided to ban its fertilizer export to secure its domestic market availability.

This is a reasonable policy reaction given the fact that without adequate fertilizer food production would decline. Especially this year as La Nina will lengthen monsoon time and therefore will provide a better opportunity for rice farmers to increase their annual production. Provided, of course, they can get sufficient fertilizer in a timely manner.

Indonesia, fortunately, has a program to provide subsidized fertilizers for smallholder farmers since 1969. The budget for this year is Rp 25.3 trillion, not a small amount but 13% less than last year.

This decrease of fertilizer subsidy in the national budget at the time of commercial fertilizer drastic price increase, unfortunately, will ensure greater suffering for millions of poor farmers. Their access to subsidized fertilizer will diminish significantly not only because less amount of subsidized fertilizer will be produced, but more will be lost in the distribution network as the higher difference of subsidized fertilizer price and its commercial price will also increase its leakage to the black market.

Hence the Government of Indonesia needs to quickly enhance its subsidized fertilizer policy to overcome this double jeopardy faced by about 24 million poor farmers. To minimize leakage in the distribution system and to ensure those that need the most will get the subsidized fertilizer in the appropriate amount and in a timely manner.

This is not an easy task. The current policy, which was formed in 2006, is clearly over-ambitious without sufficient budget support. In fact, there are more farmers targeted in the program that did not get the subsidized fertilizer than those that did. The policy defined farmers with less than 2 hectares of land and producing 70 agricultural and fishery products are eligible to receive subsidized fertilizers. Last year less than one-third of the targeted farmers’ requests for subsidized fertilizer were met. This deficit has been going on annually since the policy was implemented, creating a long-standing annualized narrative of “subsidized fertilizer scarcity” in the last 15 years.

This year the narrative will become louder as millions more farmers will complain of not receiving adequate subsidized fertilizer. The risk of declining production is higher hence the rise of imported food, including rice, and the weakening of national food resiliency.

This is a likely scenario if no change in the subsidized fertilizer policy is initiated and implemented.

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